Random thoughts and musings on the global supply chain. For additional news and thoughts connect with me on LinkedIn and Twitter: @cmroberson06

Wednesday, February 27, 2013

Sequestration effects on the US supply chain

No doubt the US government needs to do a bit of fiscal
trimming however; the process for automatic across the board cuts to government
agencies set to begin March 1 may be a major shock to a fragile economy if
indeed it occurs. Some economists have noted GDP may slow by 0.4% this year
from about 2% to 1.6% as a result of these automatic cuts. With total cuts
amounting to about $1.2 trillion over the next ten years, it is anybody’s guess
to what the effects may bring.

The cuts are to be split 50-50 between defense and domestic
discretionary spending. For the supply chain industry, this means cuts to such
government agencies as the Department of Health and Human Services’ Food and
Drug Administration (FDA), the Department of Transportation’s Federal Aviation
Agency (FAA) as well as to the Department of Homeland Security’s Customs Border
and Patrol (CBP). Many other agencies will also see financial cuts that could
negatively affect the supply chain industry.

For logistics providers providing services such as
temperature-controlled warehousing and distribution, fiscal cuts could mean
delays in inspections, certifications and recall notifications whichcould endanger the safety of the
pharmaceutical and food supplies.

According to the Federal Aviation Agency, the mandatory cuts
could possibly mean eliminating some airport control towers all together and
eliminating overnight staffing at other control towers. This would impact air
cargo carriers such as FedEx and UPS who utilize night flights to move a good
bit of cargo.

Like other government agencies, along with spending cuts,
the Customs Border and Patrol will face mandatory furloughs beginning in April.
Entering the country whether along the Mexican or Canadian border, a port or
airport will result in a longer wait. According to the CBP, cargo release wait
times at border entry points will double from the current two hours to about four
to five hours.

March will be quite interesting on Capitol Hill. Not only is
sequestration likely to occur March 1 but the six month government budget
extension expires March 27. It’s possible the government will combine both
issues and come to a resolution prior to March 27 or it will face the
possibility of a government shutdown come March 28th. Either way, get
ready as the US supply chain will not only get longer but more complicated.
Indeed, the infamous misquote from the movie “All about Eve” holds true in this
political scenario for supply chain practitioners, “Fasten your seatbelts, it’s
going to be a bumpy ride”.

About Me

Senior Analyst with Transport Intelligence, a research and consulting company for the global logistics and supply chain industry.
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